Employee vs Contractor in Australia: How to Determine a Worker’s Employment Status

At Potts Lawyers, we are regularly called to advise both employees and employers about the employment status of workers.

Often, workers have been engaged as contractors, but arguments have arisen that they were in fact employees of the company.  This has caused subsequent issues for the company not holding the relevant workers’ compensation insurances for employees.

If a worker is injured at work, and the company does not have the appropriate insurance, the financial implications and consequences to the company can be dire.  No matter if that worker is engaged as a contractor, the factors surrounding their working conditions may mean that contractor is indeed an employee.

Companies cannot simply rely on the classification of the worker’s engagement.  There are many other factors involved that differentiate contractors and employees.

In this article, we discuss the worker indicia.  That is, the criteria considered as to whether a worker is classified as a contractor or employee.

 

Worker Indicia

The Australian Taxation Office sets out six key common factors to determine a worker’s classification as employee or contractor.  They are:

1. Control
2. Integration
3. Mode of Remuneration
4. Ability to Subcontract or Delegate
5. Provision of Tools and Equipment
6. Risk

We delve into each indicia in more detail below, setting out the questions you need to consider with respect to your workers.

 

Control:

• Does your company control how, where and when the worker performs their work?
• Do you set the days and hours of work, where the work was done, and how it was performed?
• Do you provide forms and training resources for the worker to abide by and implement to others?

If so, your worker is likely an employee under this indicia.  A contractor would have more autonomy with respect to their work day, and their engagement is generally more project based.

 

Integration:

• Is your worker part of your business, or separated from your other workers?
• Are they required to represent your business?
• That is, are they required to wear a uniform with your company logo, or display signage for your company?
• Are they required to work hours set by your company, and on what basis (that is, equivalent to full-time hours)?
• Or are they able to perform work with other companies to further their own business?
• Does your company provide training, or direct the way in which the work was performed?
• Or does your company merely require the work to be performed?
• Does the worker operate independently of your business and take on other jobs?
• Are they free to accept or reject any work?

 

Mode of Remuneration:

• How is your worker paid?
• Do you pay their tax obligations and superannuation entitlements?
• Are they eligible for leave entitlements?
• Does your company dictate the daily rate the worker can charge?
• Does the worker invoice you for services rendered?
• Did you provide the worker with a proforma invoice to utilise?
• Is there a contract for the worker to achieve a specific result, or to be paid when they complete that result, or for a fixed fee?
• Is all work completed under their ABN performed for your company solely?

 

Even if the worker invoices you for services, at an agreed hourly or daily rate, and handles their own tax and superannuation obligations, they can still be considered an employee if they only work for your company and do so regularly.

 

Ability to subcontract or delegate:

• Does your worker have the ability to subcontract or delegate their work to another?
• Or are they personally required to perform the work themselves?
• Could they have paid someone else to do the work for them?
• Have you provided the worker with any reference materials or requirements for onboarding subcontractors?

 

Provision of tools and equipment:

• What tools and equipment do you supply?
• Does your worker supply their own mobile phone, laptop, vehicle, fuel, tools, and any other equipment required to perform the job?
• If a vehicle is supplied, are they allowed to use the vehicle for personal use or is their passage in the vehicle for work purposes only?
• Are you responsible for reimbursing the worker for any tools or equipment they may have been required to purchase in order to perform the job?

 

Risk: 

• Who bears the commercial risk for any costs arising out a defect in their work?
• Are you, or the worker, liable for fixing defects?

 

Totality of Indicia

These questions are not an exhaustive list and as with any matter, each case will turn on its own facts.

Even if some responses indicate the worker is a contractor, the overall factors may indicate the worker is actually an employee.

The High Court judgments in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2 clarify that the totality of the relationship between a worker and company is determinative.

That is, the indica will be considered as a whole and the majority of factors will determine the worker’s classification.

 

What To Do If Asked About a Worker’s Engagement?

If you are contacted by WorkCover Queensland as to the engagement status of a worker at your company, please contact us immediately.

Ideally, you will have workers’ compensation insurance for workers at your company.  However, if you do not possess insurance, a finding that a worker is an employee and not a contractor may leave you liable to pay hundreds of thousands of dollars in rehabilitation expenses and statutory benefits if the worker is injured.

We may be able to assist you to argue the totality of the reasons as to why your worker is correctly classified as a contractor, and why you are not liable for the worker’s injuries and the statutory benefits they are receiving.

We recommend engaging us in the first instance as strict time limits apply to appeals processes and it is ultimately less costly for us to nip the issue in the bud rather than appeal a decision and rewind your prior evidence.